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They were forecasting home sales to fall and calling for a much smaller, 1 percent gain in factory orders.

Economy

Retail spending expected to be lower

NEW YORK - Morgan Stanley on Friday sharply cut its forecast for retail sales growth in 2008, saying U.S. consumer spending will be restricted by declining home values, tighter credit standards and more modest job growth.

Analyst Gregory Melich now expects retail sales to grow 3 percent in 2008, down from a previous forecast of 4.5 percent. That would mark the slowest annual growth in retail sales since 2003.

His forecast assumes average home prices fall about 6 percent from where they are now, leading to about $100 billion less in total consumer spending, half of which he predicts would come from traditional retail categories.

Declining home sales and rising mortgage defaults have sparked fears of a slowdown in spending and forced lending institutions to tighten credit standards.

Overall, however, consumers have proven resilient even as prices for gas and food remain high and housing prices decline.

Global market

U.S. crisis takes toll on banks in China

SHANGHAI, China - Banks in China are just beginning to disclose their exposure to the U.S. subprime mortgage crisis, sending some bank shares plummeting in Hong Kong.

Bank of China saw its Hong Kong stock price fall by as much as 8.1 percent Friday in reaction to the bank's report that it holds $9.65 billion in subprime asset-backed securities and collateralized debt obligations. That's 3.8 percent of its total securities investments.

But in the Chinese mainland, where the state-controlled press ran headlines touting the minimal risks faced by two of the country's biggest banks from the U.S. credit crunch, Bank of China's shares rose Friday.